Federal Reserve launches a plan to provide liquidity to banks

The bankruptcy of the Silicone Valley Bank (SVB) has had different repercussions in the United States, which has hit the confidence in its financial system. For that reason, the Federal Reserve (Fed) has announced a plan to provide banks with greater liquidity and prevent them from being affected by the withdrawals of their clients’ deposits while maintaining the reference interest rate with high values, which, as is known, has the objective of curbing the inflation.

As a result of the Federal Reserve’s interest rate hike, Treasury bonds that are on the market are worth less. When selling them, you have to accept the lowest price offered, which is what happened to SVB. This bank needed cash and began to sell the bonds at a lower price than it cost, explains the economist Juan Vázquez on his Twitter account.

“To prevent other banks from suffering the same thing, the Federal Reserve will lend them money by accepting Treasury bonds as collateral. But it values ​​the bonds at the price they paid back in the day (nominal), not at the current market price (which is lower),” says the specialist.

Thus, the banks will have greater liquidity and will protect themselves from losses, while the Fed can continue raising interest rates and applying its monetary policy to appease the advance of inflation.

Biden: “Our banking system is safe”

The president of the United States, Joe Biden, spoke out to provide a message of reassurance to Americans by stressing that the country’s banking system “is safe” and assured bank customers Silicon Valley Bank and Signature Bank will have their deposits.

“Americans can have confidence that the banking system is secure. (…) In my Administration, nothing and no one is above the law,” stressed the president, assuring that the taxpayer will not assume any loss.